This week has been filled with uncertainty. As details about the current coronavirus outbreak emerge, people everywhere are wondering how this might affect them, their neighbors, and their families.
Before addressing what this means for investors, and PERA in particular, I’d like to acknowledge that the health crisis behind the decline in global equity markets is an issue that goes deeper than money. Our thoughts are with those who have become ill, and our hearts go out to those families who have lost loved ones. We are thankful for the hundreds of thousands of health professionals worldwide who are treating patients, taking measures to prevent the spread of this virus, and those studying ways to combat it.
At PERA, we are acutely aware of the concern our members might have about the increased market volatility brought about by this virus. We are in the business of providing retirement security, and news of market declines can be unsettling. At Colorado PERA, we invest strategically, meaning we remain invested in our primary asset classes throughout the market cycle. In other words, we do not attempt to time the market.
Our strategic asset association is determined by an asset-liability study the Board routinely undertakes. We can’t predict when market volatility will occur. However, we can—and do—incorporate risk into our investment decisions. The most recent asset-liability study, completed in December 2019, resulted in the following strategic asset allocation targets:
- Global Equities: 54%
- Fixed Income: 23%
- Private Equity: 8.5%
- Real Estate 8.5%
- Alternatives: 6%
In any given short-term period, the portfolio may perform better or worse than long-term expectations. Downturns are expected, and the swiftness with which they can occur often overshadows the rise in markets, even though positive market environments typically outweigh the negative impact of historical downturns. Global equities have indeed lost 7.7 percent from the beginning of 2020 through the market close on February 27. However, when looking at the 10-year period ending on February 27, the overall return is 8.3 percent.
Instead of trying to predict what the markets will do from day to day, the PERA portfolio is positioned to deliver the expected long-term rate-of-return assumption (7.25 percent) over the long term (30+ years).
The markets don’t always go up. However, we are confident that PERA is well positioned to continue to invest through the ups and downs of the market cycle, providing the opportunity to achieve our long-term goals.
– Amy C. McGarrity
PERA Chief Investment Officer
As measured by the MSCI ACWI IMI (benchmark for PERA Global Equity asset class)
VolatilityVolatility of returns is the measurement used to define risk. It describes the variation of price of a financial instrument over time. The greater the volatility, the higher the risk.Private equityEquity capital that is not quoted on a public exchange. The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time.Fixed incomeSecurities representing debt obligations and usually having fixed interest payments and maturities. Different types of fixed income securities include government and corporate bonds, mortgage-backed securities, asset-backed securities, and may also include money market instruments.BenchmarkThe performance objective or standard used to define the return against which another portfolio is to be evaluated.